181 F. Supp. 3d 692
C.D. Cal.2016Background
- Denny Lake ran JD United/Advocacy Program performing "back-end" mortgage modification work contracted through referral companies (HOPE/HAMP) that marketed to distressed homeowners.
- HOPE Defendants solicited clients, collected advance/"trial" payments (often misrepresented as held in trust), and then referred consumers to Lake for advocacy; Lake processed files only after being paid by the referrers.
- FTC sued Lake and HOPE Defendants for violations of the MARS Rule and the TSR and sought injunctive and monetary relief; several HOPE Defendants stipulated to liability; Lake appeared pro se.
- The FTC moved for summary judgment against Lake on theories that he provided substantial assistance to MARS and TSR violators, with knowledge or conscious avoidance of the violations.
- The court found (1) the HOPE Defendants violated MARS and TSR by taking advance fees, making material misrepresentations, and failing to disclose required information; (2) Lake substantially assisted them and knew or consciously avoided knowing of the misconduct.
- The court granted summary judgment, awarded monetary relief of $2,104,031.56 (FTC accountant's figure), imposed a permanent prohibitory injunction (narrowed from FTC’s proposed mandatory terms), and ordered the FTC to submit a revised judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lake gave "substantial assistance" in violation of MARS §1015.6 | Lake provided integral back-end services that enabled HOPE’s scheme; substantial assistance standard met | Lake argued he only did back-end work and did not market or collect advance fees, so should not be liable | Court: substantial assistance found — back-end file handling and concealment qualified |
| Whether Lake gave "substantial assistance" in violation of TSR §310.3(b) | Same facts: Lake knowingly aided telemarketing scheme that made false statements and took advance fees | Lake did not dispute the underlying TSR violations; claimed lack of direct telemarketing or fee collection | Court: Lake substantially assisted and knew/consciously avoided knowing of TSR violations; liability established |
| Whether Lake is jointly and severally liable for consumer losses | FTC sought full consumer payments as restitution and joint-and-several liability against aider | Lake argued harm is apportionable (he received fixed fees) and joint-and-several liability inappropriate | Court: Harm not capable of apportionment because Lake’s advocacy prolonged payments; joint-and-several liability applied |
| Appropriate monetary and injunctive relief | FTC sought $2,349,885 and broad fencing-in mandatory injunctions | Lake disputed liability posture and contended harms apportionable; challenged relief breadth | Court: Awarded $2,104,031.56 (accountant’s figure as reliable evidence); granted permanent prohibitory injunction but rejected overly broad mandatory reporting requirements |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard and burden on movant)
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment: genuine dispute and materiality standards)
- Burlington N. & Santa Fe Ry. v. United States, 556 U.S. 599 (capability of apportioning harm inquiry)
- Soremekun v. Thrifty Payless, Inc., 509 F.3d 978 (movant burden when it will carry trial burden)
- FTC v. Pantron I Corp., 33 F.3d 1088 (court’s authority under FTC Act to fashion equitable remedies)
- FTC v. Gill, 265 F.3d 944 (restitution as ancillary relief in FTC cases)
- Ruberoid Co. v. FTC, 343 U.S. 470 (scope of injunctions to close avenues to prohibited conduct)
- Am. Freedom Def. Initiative v. King County, 796 F.3d 1166 (disfavoring mandatory injunctions)